Banking Royal Commission: Bowen says do the job right!

Mr Bowen, the Shadow Treasurer, has given a speech in which he is reported to have made clear that a Royal Commission into banking must be thorough and carefully look at the banking regulators (APRA, ASIC, RBA) as well.

This is welcome news as a worthwhile Royal Commission into Banking and the Monetary system must, by definition, include an examination of the regulatory framework.

“…But what can a royal commission usefully deliver on these questions without diffusing the more precise focus on illegal and unethical bank behaviours?….”

The last thing we need is a Royal Commission that creates the impression that specific manifestations of the underlying rotting core are all we need to worry about.

Illegal and unethical behaviour are the expected result of the current banking and monetary model.

You don’t install drug dealers on every corner and then ignore them and instead just spend your time examining the problem of drug addiction and hope to achieve anything …..for long.

You don’t argue “We need to focus on the dreadful scourge of drug addiction without being distracted by the authorised network of drug dealers in every suburb”.

It is does not make sense.

The fundamental term of reference for a banking and monetary system Royal Commission is very simple.

“..What should be the role, if any, of private banks in the Australian banking and monetary system…”

Examine that and all the manifestations of the current failed model can be investigated.

At the last RC in 1937 they understood all of this and the conclusion of the ‘status quo’ conservative majority (Chifley in dissent considered the banks ‘credit creation as public money’ privileges should be completely removed) boiled down to the following.

If we are going to allow the private banks to keep their “credit creation as public money” privileges we must closely regulate the operation of those privileges to ensure they advance the public interest.

In other words that private bank credit creation as public money is MORE productive than if public money creation privileges were reserved exclusively to the public sector.

We are living in an economy distorted and mangled by a massive failure of private banking to deliver in that regard. The enormous levels of over investment in existing residential housing stock did not just happen by accident. It was nothing more than private banks doing what they always do when their use of the ‘privilege’ is not watched closely.

They spray bank credit at speculators taking a bet on asset prices. A situation made much worse by Howard’s decision to give asset price speculators a discount on the capital gains tax they paid on their winning.

APRA is a failure and will remain a failure because it is not designed to regulate credit creation. APRA is only concerned with banks going bust not whether they are lending for productive purposes. Trying to retrofit it with something as inherently political as Macroprudential (regulating what banks can lend for and how much) is doomed and actually succeeding is the worst result as inherently political powers directing the allocation of private bank credit should not be invested in an ‘independent’ body.

Fixing APRA means rolling it back into government so that any direction of credit creation by private banks (to increase its productive application) is controlled by the government directly. Of course if banks want complete freedom to make loans to whoever they want and for what purpose, they just need to surrender the “credit creation as public money” privilege as it is that privilege which generates the need for very close and careful regulation.

The ‘independent’ RBA is also a problem because it’s independence is premised on the idea that government runs a balanced budget over the cycle (i.e. Creating public money is a temporary thing) and the economy otherwise runs on private bank created and interest bearing credit.

That this model rapidly devolved into crime, unethical behaviour, greed, unproductive asset price speculation and economic stagnation kept alive with an immigration Ponzi scheme and massive real and financial asset sales off shore is no surprise.

It was inevitable.

We must stop fluffing around and arguing about band-aids and splashes of Dettol and commence preparations for major surgery.